California Proposition 39, Out-of-State Business Tax Liability Calculations and Energy Funding Initiative (2012)

California Proposition 39
Election date November 6, 2012
Topic Taxes
Status a Approved
Type State statute	Origin Citizens

2012 propositions
June 5
Proposition 28
Proposition 29
November 6
Proposition 30
Proposition 31
Proposition 32
Proposition 33
Proposition 34
Proposition 35
Proposition 36
Proposition 37
Proposition 38
Proposition 39
Proposition 40
Donations • Vendors
Endorsements • Full text
Ballot titles • Fiscal impact
Local measures

California Proposition 39, the Out-of-State Business Tax Liability Calculations and Energy Funding Initiative, was on the ballot as an initiated state statute in California on November 6, 2012. It was approved.

A "yes" vote supported requiring out-of-state businesses to calculate income taxes based on percentage of sales in California, repealing state law that allowed out-of-state businesses to choose tax liability formulas, and dedicating half of the resulting revenue ($500-$550 million annually) for five years from the expected increase in revenue under the initiative to fund the Clean Energy Job Creation Fund, which was designed to "support projects intended to improve energy efficiency and expand the use of alternative energy."

A "no" vote opposed requiring out-of-state businesses to calculate income taxes based on percentage of sales in California, repealing state law that allowed out-of-state businesses to choose tax liability formulas, and dedicating half of the resulting revenue ($500-$550 million) annually for five years fund the Clean Energy Job Creation Fund.

Election results

California Proposition 39
Result		Votes	Percentage
Yes		7,384,417	61.10%
No		4,701,563	38.90%

Results are officially certified.

Source

Measure design

Proposition 39 required out-of-state businesses to calculate their California income tax liability based on the percentage of their sales in California. The measure repealed an existing law that allowed out-of-state businesses to choose a tax liability either using the three-factor method, which is calculated based on the location of the company’s sales, property, and employees; or the single sales factor method, which is based on the location of the company's sales. The measure was designed to dedicate $500 to $550 million annually for five years from the expected increase in revenue under the initiative to fund the Clean Energy Job Creation Fund, which was designed under the initiative to "support projects intended to improve energy efficiency and expand the use of alternative energy.".

Prior to the approval of Proposition 39, businesses located outside of California that did business within the state had the ability to reduce their California income taxes by not locating facilities or employees within the state.

Similar laws were passed in New Jersey, Illinois, and Texas.

Text of measure

Ballot title

The ballot title for Proposition 39 was as follows:

“

Tax Treatment for Multistate Businesses. Clean Energy and Energy Efficiency Funding. Initiative Statute.

”

Ballot summary

The ballot summary for this measure was:

“

Requires out-of-state businesses to calculate their California income tax liability based on the percentage of their sales in California. Repeals existing law giving out-of-state businesses an option to choose a tax liability formula that provides favorable tax treatment for businesses with property and payroll outside California. Dedicates $550 million annually for five years from anticipated increase in revenue for the purpose of funding projects that create energy efficiency and clean energy jobs in California

”

Full Text

The full text of this measure is available here.

Fiscal impact

See also: Fiscal impact statements for California's 2012 ballot propositions

The following is a summary of the initiative's estimated fiscal impact on state and local government that was prepared by the California Legislative Analyst's Office and the Director of Finance.

“

Increase in State Revenues. As shown in the top line in Figure 1, this measure would increase state revenues by around $1 billion annually starting in 2013–14. (There would be a roughly half-year impact in 2012–13.) The increased revenues would come from some multistate businesses paying more taxes. The amounts generated by this measure would tend to grow over time. Some Revenues Used for Energy Projects. For a five-year period (2013–14 through 2017–18), about half of the additional revenues—$500 million to $550 million annually—would be transferred to the Clean Energy Job Creation Fund to support energy efficiency and alternative energy projects. School Funding Likely to Rise Due to Additional Revenues. Generally, the revenue raised by the measure would be considered in calculating the state’s annual Proposition 98 minimum guarantee. The funds transferred to the Clean Energy Job Creation Fund, however, would not be used in this calculation. As shown in the bottom part of Figure 1, the higher revenues likely would increase the minimum guarantee by at least $200 million for the 2012–13 through 2017–18 period. In some years during this period, however, the minimum guarantee could be significantly higher. For 2018–19 and beyond, the guarantee likely would be higher by at least $500 million. As during the initial period, the guarantee in some years could be significantly higher. The exact portion of the revenue raised that would go to schools in any particular year would depend upon various factors, including the overall growth in state revenues and the size of outstanding school funding obligations.

”

Background

See Energy policy in California for a full explanation of energy policy across the state.

In 2009, the California State Legislature approved a budget that included an option for how out-of-state companies calculated their tax bill. Companies could choose the “three-factor” method or the “single-sales factor” method. The single-sales factor uses in-state sales alone to determine a company’s tax obligation. With the three-factor method, companies use a combination of sales, employees, and property to calculate their taxes. For out-of-state companies with no physical presence in the state, the three-factor method offers a large savings. Thus, out-of-state businesses overwhelmingly choose the three-factor method.

The measure now known as Proposition 39 qualified for the November ballot on June 20, 2012. San Francisco-based philanthropist, businessman, and signer of the Giving Pledge, Tom Steyer conceived the measure. He is also the main financial backer. Steyer is co-chair of the Californians for Clean Energy & Jobs group, which has launched a campaign in favor of Proposition 39.

State legislator John Pérez introduced Assembly Bill 1500 during the most recent session. The bill had the same intent as Proposition 39, but it failed to gain traction among Senate Republicans.

Support

"Yes on 39" logo

Supporters

Supporters referred to the measure as the Clean Energy Jobs Act.

Individuals

• Thomas Steyer, chairman of Californians for Clean Energy and Jobs
• Jane Warner, president of the American Lung Association in California
• Mary Leslie, president of the Los Angeles Business Council
• Alan Joseph Bankman, professor of tax law at Stanford Law School
• Ruben Guerra, CEO of the Latin Business Association
• Jane Skeeter, small business owner in California
• George Schultz, Former U.S. Secretary of State to Ronald Reagan
• California State Senate President pro-tem Darrell Steinberg
• California State Assembly Speaker John Perez
• California Democratic Party Chairman, John Burton

Businesses

• Disney
• Cisco
• Qualcomm
• Amgen
• The California Teachers Association
• Atlas Project Support
• Genentech

Organizations

• San Francisco Chamber of Commerce
• California Labor Federation
• California Nurses Association
• American Lung Association - California
• CA NOW
• California Alliance for Retired Americans
• California Church IMPACT
• Latin Business Association
• California Labor Federation
• CleanTECH San Diego
• Los Angeles/Orange Counties Building & Construction Trades Council
• Los Angeles Business Council
• California Community College Trustees
• California League of Conservation Voters

Arguments

• Thomas Steyer, the founder and co-senior managing partner of Farallon Capital Management, said, "We have a loophole. It is worth over $1 billion a year. We should close the loophole, and that is what we are doing."

Official arguments

The official arguments in favor of Proposition 39 that were presented in the state's 2012 voter guide were signed by Thomas Steyer, chairman of Californians for Clean Energy and Jobs; Jane Warner, president of the American Lung Association in California; and Mary Leslie, president of the Los Angeles Business Council. The arguments were as follows:

“

IN 2009, A POLITICAL DEAL CREATED A BILLION DOLLAR TAX LOOPHOLE FOR OUT-OF-STATE CORPORATIONS . . . At the end of the 2009 budget negotiations in Sacramento, in the middle of the night, legislators and lobbyists for out-of-state corporations made a deal—with no public hearings and no debate. They put a loophole into state law that allows out-of-state corporations to manipulate our tax system every single year, and avoid paying their fair share to California. The cost of this loophole: $1 billion per year in lost revenues for California. YES on 39 ELIMINATES THE OUT-OF-STATE TAX LOOPHOLE Prop. 39 simply closes this loophole. It ends this manipulation of our tax system—and requires that all corporations doing business in California pay taxes determined by their sales here, no matter where they are based. Prop. 39 LEVELS THE PLAYING FIELD, ensuring that multistate companies play by the same rules as California employers. YES on 39—ELIMINATING THE LOOPHOLE IS GOOD FOR CALIFORNIA’S JOB MARKET The current tax loophole lets corporations pay less tax to California if they have FEWER employees here—giving companies a reason to send jobs out of state. In fact, the state’s nonpartisan, independent Legislative Analyst has cited studies showing that the tax policy in Prop. 39 will bring California as many as 40,000 jobs. That’s why the independent Legislative Analyst has called for eliminating the present loophole. YES on 39 BENEFITS CALIFORNIA TAXPAYERS Multistate corporations that provide few jobs here are using the loophole to avoid paying their fair share to California, costing the state $1 billion per year in lost revenues. Prop. 39 will close that loophole and keep these funds in California to provide vitally-needed revenues for public services. Because almost half of all new revenue is legally required to go to education, hundreds of millions of dollars per year will be dedicated to schools. Additionally, Prop. 39 will create savings for taxpayers. 39 will use a portion of the revenues from closing the loophole to fund energy efficiency projects at schools and other public buildings. Using proven energy efficiency measures like improving insulation, replacing leaky windows and roofs and adding small-scale solar panel installations will reduce state energy costs—freeing up dollars for essential services like education, police, and fire. “By increasing energy efficiency, Prop. 39 will reduce air pollution that causes asthma and lung disease. In the process of upgrading school buildings, Prop. 39 will also remove lead, asbestos, mold, and other toxic substances from schools.”—Jane Warner, President, American Lung Association in California YES on 39—STRICT ACCOUNTABILITY Prop. 39 contains tough financial accountability provisions —including INDEPENDENT ANNUAL AUDITS, ongoing review and evaluation by a CITIZENS OVERSIGHT BOARD, a COMPLETE ACCOUNTING of all funds and expenditures, and FULL PUBLIC DISCLOSURE. YES on 39—IT’S COMMON SENSE: CLOSE the OUT-OFSTATE TAX LOOPHOLE. BRING $1 BILLION per YEAR BACK TO CALIFORNIA.

”

Opposition

Opponents

Individuals

• Jack Stewart, president of the California Manufacturers & Technology Association
• Lew Uhler, president of the National Tax Limitation Committee
• Pat Kong Kushida, president of the California Asian Pacific Chamber of Commerce
• Mike Spence, president of the California Taxpayer Protection Committee
• Robert Ming, chairman of Friends for Saving California Jobs

Businesses

• Chrysler
• General Motors
• Kimberly-Clark
• International Pape

Organizations

• The California Republican Party
• California Employers against Higher Taxes
• Carpinteria Valley Chamber of Commerce
• Simi Valley Chamber of Commerce
• Oxnard Chamber of Commerce
• United Chambers of Commerce

Arguments

Official arguments

The official arguments in favor of Proposition 39 that were presented in the state's 2012 voter guide were signed by Mike Spence, California Taxpayer Protection Committee; Robert Ming, chairman of Friends for Saving California Jobs; and Jack Stewart, president of California Manufacturers and Technology Association. The arguments were as follows:

“

When you read Prop. 39’s campaign promises, remember that Tom Steyer—whom CNN called “California’s Hedge Fund King”—is bankrolling $20 million on slick poll-tested buzzwords like “loophole,” and promising “clean jobs.” California is already losing businesses at a record rate. Ask yourself how raising taxes on companies employing tens of thousands of Californians makes things better? It won’t! CALIFORNIA IS ALREADY BILLIONS IN DEBT BUT PROP. 39 MAKES THINGS WORSE! California is the worst state for business for eight consecutive years, and has the worst credit rating in America. Millions are unemployed. Loophole? No. Prop. 39 repeals a tax law that’s been in effect for decades generating billions in state revenue. The nonpartisan Legislative Analyst and the Department of Finance agree: 39 IS A $1 BILLION TAX INCREASE. Here’s the truth. A $1 billion tax increase gives California employers another reason not to invest or hire. Fewer jobs mean lower revenue and more cuts to schools and law enforcement. Is that good for California? Prop. 39 is ballot box budgeting at its worst. It raids $2.5 billion from the state budget—money that could go to schools, roads, infrastructure, or public safety. PROP. 39 ALSO ADDS NEW BUREAUCRACY— MILLIONS IN SALARIES AND PENSIONS FOR POLITICAL CRONIES. No accountability, and no taxpayer protection against corruption. Higher taxes, fewer jobs, more bureaucracy and waste . . . ZERO accountability and no taxpayer protections against conflicts of interest. That’s the story on Prop. 39. Democrats, Independents, and Republicans agree—vote NO!

”

Editorial opinion

See also: Endorsements of California ballot measures, 2012

"Yes on 39"

2012 propositions
June 5
Proposition 28
Proposition 29
November 6
Proposition 30
Proposition 31
Proposition 32
Proposition 33
Proposition 34
Proposition 35
Proposition 36
Proposition 37
Proposition 38
Proposition 39
Proposition 40
Donations • Vendors
Endorsements • Full text
Ballot titles • Fiscal impact
Local measures

• The Bakersfield Californian: "It's time to fix a bad tax policy, created three years ago by the California Legislature, once and for all."

• The Contra Costa Times: "State lawmakers have refused to correct the mistake they made in 2009 when, in a late-night budget session, they created a tax incentive for companies to locate outside California. Voters need to fix it for them on Nov. 6 by voting for Proposition 39."

• The Daily Democrat (Woodland, California): "Vote yes on this initiative to end a system that lets out-of-state corporations choose their methods of taxation."

• The Fresno Bee endorsed Proposition 39 on October 1st, 2012. They wrote, "If it's approved, the initiative would generate $1 billion a year."

• The Los Angeles Times: "Proposition 39, would raise an estimated $1 billion a year, about half of which would be dedicated temporarily to making public buildings more energy efficient."

• The Marin Independent Journal: "This measure needs to be on the ballot because the state Legislature has refused to close a business tax loophole it approved in a late-night budget decision in 2009."

• The Merced Sun-Star: "The initiative on the Nov. 6 ballot would close a $1 billion corporate tax loophole, one that legislators are incapable of shutting because they are beholden to outside influences."

• The Modesto Bee: "Proposition 39 shows how direct democracy should work."

• The Oakland Tribune: "Prop. 39 will help keep businesses here."

• The Press-Enterprise: "California has no need for a tax break that puts the state at an economic disadvantage."

• The Redding Record Searchlight: "[Proposition 39] ends a billion-dollar giveaway to out-of-state corporations."

• The Sacramento Bee: "Essentially, out-of-state corporations such as cigarette maker Altria gained the privilege to determine which of two methods of taxation allowed them to pay the least in state taxes, and they are allowed to toggle back and forth each year so as to gain the greatest benefit,... Proposition 39 shows how direct democracy should work."

• The San Diego Free Press: "Proposition 39 would eliminate the ability of companies to choose between two methods to calculate their taxable income in California and require them to use sales only for the calculation."

• The San Francisco Bay Guardian: "It's more fair, it creates the right incentives to keep jobs and equipment in the state, and it cuts a hole in the deficit."

• The San Jose Mercury News endorsed Proposition 39, writing, "State lawmakers have so far refused to correct the mistake they made in 2009 when, in a late-night budget session, they created a tax incentive for companies to locate outside California. Voters will be able to fix it for them Nov. 6 by voting yes on Proposition 39."

• The Santa Cruz Sentinel: "Ballot-budgeting? Yes. But as it stands, Steyer's Prop. 39 revenue would help create jobs while also cutting down on energy use and greenhouse gas emissions at public buildings -- and the revenue directed toward these causes is limited to five years. More importantly, the tax loophole is egregious and only encourages multistate companies doing business in California to create jobs outside the state."

• The Vallejo Times-Herald: "We'd prefer to see all the money go to the general fund, but it almost doesn't matter. The important thing is to change a tax policy that now encourages firms to leave California or to expand in other states. Proposition 39 does that."

"No on 39"

• The editorial board of the Appeal-Democrat opposed Proposition 39, writing, "Steyer said the initiative would create green jobs. But taxes kill jobs by sucking money out of the private sector. Similar green-jobs claims were made about Assembly Bill 32, the Global Warming Solutions Act of 2006, by Gov. Arnold Schwarzenegger. But A.B. 32 didn't prevent state unemployment from soaring well above the national rate. California's real employment problem is not a lack of green jobs, but the state's severe anti-jobs climate, to which A.B. 32 and the specter of Steyer's initiative contribute."

• The Bay Area Reporter: "We agree that this is a loophole in the state tax code that should be eliminated. However, this proposition then mandates that the increased revenue, estimated at up to $1 billion annually, be earmarked for specific energy and education programs. This is ballot box budgeting, and we oppose it. It is the role of the legislature to determine the most effective use of revenues, particularly in these hard times of competing priorities. This is a loophole that needs to be closed, but this proposition brings too much other baggage."

• The Long Beach Press-Telegram: "Proposition 39 is a mixed bag - like so many of the initiatives that appear on California's ballots - that should be rejected. At its core is a sound idea: changing the way multistate corporations are taxed in order to remove a perverse incentive against locating operations in California. But the measure has two big problems: One, it's yet another example of ballot-box budgeting, directing half the revenue that would be generated into niche projects instead of into the general fund; and two, it goes back on a budget deal that the Legislature made three years ago."

• The Los Angeles Daily News: "...the measure has two big problems: One, it's yet another example of ballot-box budgeting, directing half the revenue that would be generated into niche projects instead of into the general fund; and two, it goes back on a budget deal that the Legislature made three years ago."

• The Orange County Register: "Prop. 39 ultimately would punish companies with higher taxes and consequently their customers with higher prices, while discouraging hiring in California. We suspect a substantial motive behind the initiative, which largely was funded by a private equity fund partner with clean energy investments, is to extract more taxes, and to use much of the additional money to reward favored projects."

• The Pasadena Star-News opposed Proposition 39, writing that, "PROPOSITION 39 is a mixed bag - like so many of the initiatives that appear on California's ballots - that should be rejected."

• The San Bernadino Sun opposed the initiative, writing, "Of the $1 billion or so in additional tax revenue that change would produce, Proposition 39 directs half into energy efficiency and alternative energy projects for four years."

• The San Diego Union-Tribune opposed Proposition 39, writing, "Proposition 39 targets this same loophole. But instead of using the extra revenue to help small business and spur the struggling economy, the measure would devote half the new revenue, up to $550 million, to alternative energy and energy efficiency projects. These areas are already getting billions of dollars in federal funding, sometimes with horrible track records. We much prefer Fletcher’s approach – or the simplest idea of all: just putting all the money back in the general fund, not half of it."

• The San Francisco Chronicle opposed the initiative in a September editorial, stating that, "Proposition 39, which would direct about half of the extra $1 billion in annual revenue to energy-efficient projects, corrupts a very good idea (tax reform) with a very bad one (ballot-box budgeting)."

• The San Gabriel Valley Tribune: "California can't stand any more ballot-box budgeting that squirrels away money for a single purpose favored by an initiative's proponents - in this case a hedge-fund billionaire. Proposition 39 creates the Clean Energy Job Creation Fund, another otherwise untouchable pot of money like the First 5 and mental health funds that past initiatives have given us. The purposes are good, but they should be weighed against other priorities like education and care for the indigent and elderly."

• The Ventura County Star opposed Proposition 39, stating, "Supporters of Proposition 39 may have had good intentions, but this initiative on the Nov. 6 ballot doesn't measure up to reasonable expectations. The Star recommends a no vote."

• The Victorville Daily Press: "Thomas Steyer, a San Francisco hedge-fund manager who’s worth in excess of $1.3 billion, authored Prop 39 and has invested millions of dollars in the campaign to have it approved. This is far from selfless. Mr. Steyer’s hedge funds invest in 'clean' energy — windmills, you know, and solar plants. So it’s easy to understand why, in writing Prop 39, Mr. Steyer stipulated that for the first five years after it becomes law, some $5 billion of tax revenue it throws off will go into building 'green' projects. Remember, that $5 billion is going to come from you because of higher prices on the stuff you buy, just to keep Mr. Steyer’s hedge funds spewing cash for his investors. Just what we need, another environmental activist mandate to soak Californians’ family budgets — to no justifiable purpose. Like other tax increase measures on the Nov. 6 ballot (Prop 30, for instance) Prop. 39 is just another measure that would raise taxes at the expense of private-sector economic growth, to hand billions of dollars to Gov. Jerry Brown and Legislature to do with as they please."

Polling information

See also: Polls, 2012 ballot measures

A Field Poll taken in late June/early July showed that the "yes" side had a very slight lead over the "no" side, but with less than 50% support.

A Field Poll conducted in mid-September showed similar levels of support and opposition.

Date of Poll	Pollster	In favor	Opposed	Undecided	Number polled
June 21-July 2, 2012	Field Poll	44%	43%	13%	997
September 6-18, 2012	Field Poll	45%	39%	16%	902
September 17-23, 2012	USC Dornsife/Los Angeles Times	51%	29%	20%	1,504
October 7-10, 2012	California Business Roundtable	60.6%	25.1%	14.3%	830
October 21-28, 2012	California Business Roundtable	54.5%	28.5%	17.0%	2,115

A poll of 802 likely voters conducted by the California Business Roundtable and Pepperdine University’s School of Public Policy showed 57 percent of voters in support of Proposition 39. Twenty-nine percent opposed the measure.

Path to the ballot

See also: California signature requirements

• The letter requesting a title and summary was signed by Joseph Caves.
• The 150-day circulation deadline for #11-0080 was June 11, 2012.
• 504,760 valid signatures were required for qualification purposes.
• Signatures to qualify the initiative for the November 6, 2012, ballot were submitted to county election officials throughout the state on May 4, 2012.
• On June 20, the California Secretary of State announced that Proposition 39 had qualified for the November 6, 2012, ballot.

Cost of signature collection:

The cost of collecting the signatures to qualify Proposition 39 for the ballot came to $1,796,003.

The signature vendor was Masterson & Wright.

See also

2012 Measures

• 2012 Measures
• Redistricting measures on the ballot
• 2012 legislative sessions

California

• California ballot measures
• California ballot measure laws

News and analysis

• Ballot measure lawsuits
• Ballot measure readability
• Ballot measure polls

External links

Suggest a link

• November 2012 official voter guide
• Ballot title, summary and LAO analysis of Proposition 39
• Arguments for and against Proposition 39 in the official state voter guide
• Letter requesting a ballot title for Initiative 11-0080
• Living Voters Guide to Proposition 39
• Proposition 39, an overview prepared by the League of Women Voters of California
• Proposition 39 on Voter's Edge
• Proposition 39 Cheatsheet from KCET
• Proposition 39 on California Choices (sponsored by Next 10, IGS at UC Berkeley, the UC San Diego Political Science Department, the Bill Lane Center for the American West at Stanford, and the Center for CA Studies at Sac State)
• Proposition 39 at the California Voter Foundation